The Federal Board of Revenue (FBR) is preparing to address the widespread usage of cash transactions in order to increase tax collection and keep a closer check on financial dealings in the vast world of real estate. High-ranking FBR officials have announced plans to implement tough fines and increased monitoring methods to ensure that everyone follows the regulations.
Let’s go back to 2019, when the Income Tax Ordinance, 2001 was amended with Section 75A. This modification made it plain that no one should purchase property worth more than Rs. 5,000,000 (five million rupees) or any other asset worth more than Rs. 1,000,000 (one million rupees) without utilizing particular banking techniques.
Furthermore, the Board or the provincial authorities will determine the value of the property for stamp duty purposes, whichever is greater.
Here’s why sticking to certain financial channels is critical: To begin, if you do not follow these regulations, you will be unable to claim certain tax deductions. This implies no deductions for depreciation, initial allowance, intangibles, or pre-commencement cost for assets obtained using methods other than those allowed by the bank.
Second, any cash or bearer cheque used for a purchase that should have been made via the appropriate banking channels would not be included as a cost for computing any profits from the asset’s sale.
To put it into perspective, suppose you want to purchase a property for 6 million rupees and prefer to pay in cash rather than following Section 75A’s restrictions. You would be breaking the law.
Unfortunately, many people ignore these guidelines. Some property sellers are not licensed or are not completely aware of the requirements, and customers often prefer cash transactions, particularly for homes worth less than ten million rupees.
FBR talks have resulted in a strategy. They will be carefully monitoring property transactions in certain regions they have specified, and anybody who violates these regulations will face fines.
So, remember, when purchasing property in Pakistan, it’s advisable to adhere to the banking procedures stated in Section 75A to prevent any unpleasant tax surprises.